Will NYC's College Building Boom Bubble Pop?

Real estate development was the first casualty of the Great Recession, but a half-dozen New York City colleges are in the midst of an unprecedented building boom.

St. Johns University in Queens has already spent almost $160 million on a new student center and classroom upgrades during the past two years alone. Fordham, the New School, and John Jay College of Criminal Justice are all betting on big campus expansions. And over the next three decades, NYU and Columbia are preparing to shell out nearly $10 billion for academic and administrative buildings, dormitories, research labs, and even unrelated commercial ventures like a hotel and a jazz club.

Yet just as some of these schools get ready to send shovels into the ground, a weakened economy threatens to undermine even the best-laid plans. Students and their parents are increasingly reluctant to take on debt, especially at a time when job security is in doubt, says Joseph Marr Cronin, a longtime university administrator and former Massachusetts secretary of education. Its a trend thats reflected in the growth of community collegeswhich now account for nearly half of undergraduate enrollmentand online schools.

Today, there are four million students taking one or more courses online, Cronin says. You dont need a building for that. All of a sudden, the market for the most expensive colleges could really stall.

Cronin is part of a Greek chorus warning of a higher education bubble, brought onlike the subprime mortgage crisisby easy credit and inflated price tags. One of the most prominent Chicken Littles is Steve Eisman, the hedge-fund manager whose bet against the housing market played out in the pages of Michael Lewiss bestseller The Big Short. At a Manhattan investment conference in May, Eisman noted rising
default rates on student loansup to 6.7 percent this year from 5.2 percent last yearand predicted that stocks of for-profit colleges could drop by as much as 50 percent: Its just like subprime, which grew at any cost and kept weakening its underwriting standards to grow.

But theres a big difference between publicly traded colleges and prestigious four-year universities like Columbia and NYU, right?
Dont be so sure, warn skeptics. The amount the
average family pays for college has ballooned by more than 440 percent over the past 25 years, notes the National Center for Public Policy and Higher Education. Thats more than four times the rate of inflation, and the only thing keeping the bubble from bursting may have been easy credit. Over the past two years, the number of student loan accounts has gone up by nearly 30 percent to 69 million, according to the credit rating agency Equifax, while balances have exploded five-fold to $527 billion. At the same time, the value of a sheepskin actually declined during the first four years of this decade, according to a 2006 report by the White House Council of Economic Advisers, with average wages for college grads dipping
a bit more than 5 percent.

All of this could spell bad news for the campus expansions planned by New York City universities. With the exception of John Jay,
a CUNY college that charges only $2,300 a semester, theyre all expensive, which means they depend on students borrowing lots of money to fund their expensive tuition, observes Glenn Reynolds, the University of Tennessee law school professor and conservative commentator best known for his blog Instapundit.com. The five private schools charge between $31,250 (St. Johns) and $39,900 (Columbia) a year for tuition alone.

When you include room and board, NYU costs $53,600 for nine months, and is among the nations most expensive colleges. Its average student graduates with more than $33,000 in loans. Doomsayers like to trot out the story of Cortney Munna, a 26-year-old NYU graduate who owes more than $100,000 for her degree in religious and womens studies. She lamented to The New York Times that shell be slaving away the rest of her life to pay for a diploma she would happily give back.

Reynolds has little sympathy for Munnaand even less for NYU. He thinks colleges with expansion plans might be building a house of cards.

If students become less willing or able to borrow a lot of money, will the expansion still be economically viable? he asks. And, more significantly, have [the schools] even given that possibility serious thought as part of their planning?

Will They Come?
Even as some universities have put campus expansions on holdHarvard, for example, shelved a $1 billion science complex last December after seeing a 30 percent drop in its endowmentNew York Citys colleges paint their bold plans as necessary bids to stay competitive.

Some are simply catching up. John Jay College, for example, plans to maintain its full-time enrollment at around 11,400 students even after it completes the $557 million facility thats currently rising between 58th and 59th streets along Eleventh Avenue, says project coordinator Ynes Leon. Weve already run out of room.

Similarly, Fordhams Lincoln Center campus was built for 3,500 students in the late 1950s, but now serves 8,000. Weve needed new facilities for a while, says Fordham spokesman Bob Howe. After the addition of a new $1 billion building to house dormitories and the graduate schools of law, business, social work, and education, Fordham hopes its enrollment there will increase to slightly more than 11,000 students by 2032.

Comparatively, the expansions planned by Columbia and NYU are audacious. Columbia is trying to expand by 17 acres in West Harlem, with much of that space going to medical and scientific research facilities. It plans to erect more than a dozen buildings between 125th and 134th streets and promises to create affordable housing as well as 6,000 permanent jobs. (Columbia officials wouldnt estimate how many more students the new campus will accommodate.) NYU wants to grow by six million square feet by 2031, an increase of 40 percent over its current size. Half of NYUs expansion would be in Greenwich Villagea plan that still requires rezoning and approval by the citys landmarks commission and the City Councilwhile the other half would put new campuses in Brooklyn and on Governors Island. NYU expects the expansion will allow it to increase enrollment by 13 percent, to 46,500 students, over the next 21 years.

But will these schools really need all of this space once it comes online? Ten years from now, will we be downloading courses via Facebook apps onto iPads? Could all that classroom space end up being about as useful as the new home once planned for the New York Stock Exchange? In 2002, the Big Board walked away from a $1.1 billion deal with the city, realizing advances in technology meant it no longer needed a physical
trading floor.

Enter the Edupunks
Its easy to understand why New Yorks universities are optimistic. Last year, NYU saw a record 38,000 applications for freshman admission, four times what it received 20 years ago. Nationwide, college enrollment is predicted to grow 13 percent by 2018, but the U.S. Department of Education cautions that its forecast doesnt factor in such potentially disruptive forces as the rising cost of college, the changing economic value of a degree, and the impact of distance learning due to technological changes.

The troubled economy and changing technology have already fueled a do-it-yourself education reform movement dubbed edupunk, which envisions virtual campuses and lower-cost or even free instruction. The edupunks are picking up where traditional institutions left off. Since 2001, the Massachusetts Institute of Technology has offered free online lecture notes, exams, and videos from classes. Today, its site gets 1.5 million visits a month, serving 900,000 unique users, and its part of a worldwide Open CourseWare Consortium of universities offering free courses online. Other schools, such as Yale and the University of California at Berkeley, are posting video lectures. You cant get a degree from any of these efforts, but you can learn.

Early on, there was a lot of concern, recalls Steve Carson of MIT OpenCourseWare. What would the students think? What would the parents think? After all, theyre paying lots and lots of money, and here we are giving away the same materials for free.

But when you talk to students, you find the value of being on campus is access to the equipment, access to the professors, and the opportunity to study with other bright and motivated students, Carson continues. Theres a certification and assessment for the learning that takes placeits all presented on campus as a big package. MIT took one piece of that and put it up on the Internet, unbundled.

During the dot-com boom, many universities expended a lot of resources exploring the use of the Internet, but the most prestigious of the lot found they couldnt charge their customary top dollar for online offerings. Beginning in 2000, for example, Columbia spent $25 million on Fathom.com, which offers online courses taught not only by Columbia faculty but by instructors at such places as the University of Chicago and the American Film Institute. But after two years, and few students willing to pay for classes, Fathom converted into a free online archive of lectures and course materials. (Columbia does offer online courses as well as professional and graduate degrees in engineering and applied science.) NYU abandoned an initial online effort in 2003, though it now offers select graduate and undergraduate courses on the Web through its School of Continuing and Professional Studies, and online degrees in social sciences, human resources and management, and international business.

The early online efforts were meant to level the playing field and drive down costs, says Cathy Casserly of the Carnegie Foundation for the Advancement of Teaching, but mostly they couldnt replace face-to-face instruction. I dont think were there yet, because people are still experimenting with how the technology gets used.

Still, edupunks remain hopeful about unbundling more elements of the campus experience. One site, the Peer 2 Peer University, provides an online community of study groups or book clubs where you can network with other students.

I think youll start to see more of these pieces becoming unbundled, says Carson, and savvy students will have the opportunity to recombine them in strategic ways to get exactly what they need.

Bricks, Not Clicks
Of the planned expansions in New York, NYUs is particularly remarkable considering that 37 years ago, the schools financial troubles forced the sale of its Bronx campus in University Heights. Today, university president John Sexton is aggressively pursuing expansions both here and abroad. He says the schools Abu Dhabi campusentirely bankrolled by the oil-rich emiratemay soon be joined by a third degree-granting campus in Shanghai. Apart from its new campus, Abu Dhabi has made an unrestricted gift of $50 million to NYU, and its reportedly helping to finance Sextons New York scheme (though the
university would neither confirm nor deny that claim to the Voice).

The Abu Dhabi school is part of a larger push by U.S. universities to create international franchises, and Sexton has proved adept at putting the touch on foreign donors, whom NYU may have to count on to supply future generations of students. NYU ranked 11th in donations among U.S. universities last year, compared with 27th in 2001, the year Sexton was named president.
Columbia, however, turned down an offer to open a law school in Qatar, president Lee Bollinger revealed in May. Over time, a degree-granting campus abroad might struggle to attract the same quality of students and faculty. The biggest concern is you dilute your reputation, Bollinger told Business Week. You lower the quality of what your institution is offering. Much of the emphasis of Columbias expansion is on research, though it will also add new classrooms and residence halls, a performing arts center, and a jazz club.

On face value, NYUs massive expansion in New York City carries the risk of mortgaging the future: While the university refuses to attach a price tag to its plans, the widely reported $3 billion tab would cost about $1 billion more than what NYUs total endowment is worth today. The time is right, Sexton explained. Interest rates are low, and real estate is depressed, but the pressure on school endowments may make them less likely to offer financial aid. NYUs expansion could end up looking like a land-speculation deal as much as an educational one. A planned 38-story tower on Bleecker Street would end up holding not only faculty housing but a luxury hotel.

Its wouldnt just be a hotel that NYU would use for visiting professors or conferences, explains Andrew Berman of the Greenwich Village Society for Historic Preservation. It would be like a Marriott.

Current students have been less enthusiastic about expansion plans. A year ago, students at the New School and NYU took over their cafeterias in part to protest the planned expansions at both schools. The New School students said a new $350
million tower would mean theyd lose their library for several yearstheir entire academic careers there.

The school wants us to make sacrifices, said Lucas Heartstone-Rose, a New School senior studying political science and biology who was involved in last years protests. Class sizes have grown; tuition has gone up. Are they even thinking about me?